Recently we conducted marketing with clients and discussed on both property and PM sectors. For property sector, investors were generally concerned about tightening and lack of long-term growth so the fund allocation remains low. For PM sector, they remain bullish but may chase the high-growth second-tier players rather than leaders due to valuation. Below are the key debates:
- Key debate 1: Could industry VAS per GFA (RMB4/sq m) catch up with the level of US/Japan (RMB50-56/sq m)? As our key thesis in our industry report, we think it is achievable in the mid-long term because 1) China PM firms can provide more types of services than peers in US/Japan. The leading firms in US/Japan (First Service/Nihon housing) are mainly doing brokerage of secondary housing/insurance and equipment maintenance to boost their VAS. However, China peers can extend to high-margin businesses (new retail and media) and this may help drive up the VAS potential for successful players. 2) The occupancy and penetration rate has room to improve. The average occupancy rate remains low in the industry due to the high portion of new delivery. We estimate only 39% of industry managed GFA has an age of >3 years, which implies occupancy rate to be 55-60%. We think this has room to improve as well compared to mature market in US/Japan.
